Electronic invoicing: the way forward

The Ombudsman for Australian Small Business and Family Enterprise, Kate Carnell AO, has encouraged larger businesses to offer e-Invoicing to their small business clients.
Speaking at the recent Australian Business Software Industry Association (ABSIA) Annual Conference on ‘e-Invoicing, Ms Carnell said: “We will continue to advocate digitisation, and its many applications, so small businesses can realise the benefits of participating competitively in the digital economy.”
e-Invoicing is a digital practice where trading partners directly exchange invoice data, enabling the invoice to be directly lodged in the recipients accounting system.
The adoption of e-Invoicing promises to generate huge savings for both large and small business. Studies have shown that the processing costs associated with e-Invoicing can be as much as 80% less than traditional paper and PDF style invoices. A paper invoice can cost as much as $30.87, with its PDF cousin, typically delivered via email, being only slightly less at $27.97. In comparison, an e-Invoice attracts only $9.18 in processing costs. A significant saving for all participants.
There are 2.2 million small businesses, which represents 97% of all businesses in Australia. Over 50% have adopted cloud-based accounting systems.
This high rate of adoption in the small business community opens up the opportunity for larger business to provide an easy time-saving low-cost purchasing process to their small business clients.
ABSIA’s resident e-Invoicing expert, Simon Foster, will be holding a free education session for the supply chain industry on 16 January in Sydney. Simon Foster is also the e-Invoicing leader for the Digital Business Council (DBC) and the founder of Squirrel Street, an eBusiness enablement provider.
For booking and more information click here.

Cash tied up, suppliers squeezed: report

McGrathNicol Advisory has launched its 2018 Working Capital Report, revealing working capital metrics worsened, on average, across a sample of 146 ASX-listed businesses, in nine sectors.
The report shows working capital cycles increased by an average of 0.5 days to 48.7 days in 2018, tying up an additional $691 million in working capital within the sampled companies. The net result of 0.5 days was driven by companies holding higher average inventory balances but attempting to offset that cash impact by taking slightly more time to pay suppliers where possible.
The report revealed transport & distribution companies experienced the greatest deterioration in working capital performance, with all but one of the sampled companies having lengthened working capital cycles.
While 75% of the sample reported EBITDA growth, increased levels of activity and improved trading performance didn’t translate to better working capital outcomes.
Longer customer collection cycles and shorter supplier payment cycles drove the increase in working capital cycles. 88% of the sample reported a structural ‘funding gap’ in 2018 (meaning companies typically paid their suppliers on shorter terms than they collected from their customers). The structural funding gap widened for 75% of the sample in 2018.
While there was an overall increase in cash tied up in working capital, four of the nine sectors achieved an improvement in average metrics. The Construction & Engineering and Telecommunications sectors performed the best, each achieving more than a four day reduction in working capital cycles, on average.
For Construction & Engineering a shortening of debtor and inventory cycles drove a stronger working capital performance. The sector generally operates in an environment where suppliers are paid much faster than payments are received from customers under what are sometimes complex contracts. Closing this structural funding gap is going to become more challenging under proposed changes to the Security of Payments Act, meaning businesses in the sector need to focus on improving their contracting billing and collections processes. The results show that on average the gap closed by 0.4 days. Downer EDI was one of the biggest improvers managing to materially reduce the average time to collect cash, closing the funding gap by 15 days.
The improvement in the telecommunications sector was driven by a mix of faster customer collections, lower inventory and longer supplier payment cycles. Telstra and Amaysim were the best performers in telecommunications, with their working capital improvements representing a net cash benefit of $919.6 million and $14.6 million respectively.
McGrathNicol Advisory Partner Jason Ireland said, “The Construction & Engineering sector benefited from stronger market conditions with 81% of companies in the sample growing both revenue and EBITDA. The majority of companies in the sample were also able to improve their working capital management unlocking more than $670 million dollars in cash.”
“However, the solid performance in Construction & Engineering went against the grain with the majority of other sectors seeing an increase in cash tied up in working capital. That’s cash Australian businesses could be using to fund their growth and deliver more value to shareholders. The figures show that even a relatively small deterioration in metrics can represent a significant lost opportunity.”
The Food and Beverage sector had the longest working capital cycle of any of the industries covered, mainly due to its large inventory holdings. Two thirds of companies in the Food and Beverage sector sample held onto inventory longer driving a 2.6 day increase in Days Working Capital across the sector
“Some companies are performing exceptionally well in determining their optimal working capital holdings then setting a course to achieve them. The findings confirm that management teams need to keep a balanced and concerted focus on all three working capital levers, inventory, debtors and creditors, in order to maximise their cash flow. The competitive advantage to be gained is clear when you consider the length of working capital cycles can vary by more than 100 days between best and worst performers within a sector,” Mr Ireland added.
To read the full report visit www.mcgrathnicol.com.

Bitcoin used to settle freight deal for first time

A logistics operator has used Bitcoin to settle a freight transaction for the first time, news site Bloomberg reports.
According to the venture behind the transaction, Prime Shipping Foundation (PSF), the deal went through last month on a ship carrying wheat from Russia to Turkey, part of pilot testing of PSF’s blockchain payment system for bulk commodities.
Ivan Vikulov, CEO of PSF – a partnership between investment enterprise Quorum Capital and shipbroker Interchart – told Bloomberg that the group is also planning the develop its own digital currency.
“We are trying to develop a cross-border payment system that’s easier and faster than what’s available now,” Vikulov told Bloomberg. “As far as we know, this is the first freight deal done in a cryptocurrency.”
The ship carried 3,000 metric tons of wheat from Rostov-on-Don in southeast Russia to Samsun in northern Turkey.

Coles supermarket improves payment system for suppliers

Coles will reduce the payment times for its suppliers from an average of 30 days to within 14 days from July, the supermarket recently reported.
The move comes ahead of a report from Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell set to reveal the payment times of the nation’s major corporations, due to be released in the coming weeks.
John Durkan, Managing Director, Coles said that payment times will be reduced for the more than 1,000 suppliers that provide the supermarket with up to $1 million in merchandise each year, specifically those issuing electronic invoices.
“We understand how important cash flow is for small suppliers and shortening payment times will help to make it easier for them to run their business,” he said.
Carnell has reported ahead of the release of the report that payment times have become worse over the past 12 months, and large multi-national companies are the worst offenders.
“In fact, some large companies have moved payment terms to as long as 120 days,” she added.
Carnell added that Coles’ decision will benefit hundreds of small businesses.
A spokesman for Coles told Inside Retail that the supermarket’s movement towards shorter payment times did not come about due to the ombudsman’s report, rather it was part of its ongoing work to improve its relations with suppliers.

Business payments blow out amidst tougher conditions

Business-to-business payment terms have blown out to their highest level since 2001, increasing cash flow pressure on Australian businesses already buffeted by a shakier economic outlook.

The latest figures in Dun & Bradstreet’s (D&B’s) quarterly trade payments analysis reveal that the average payment period across all industries has reached 55.8 days.

While businesses of all sizes saw a blow out in the length of time it took to get paid, suppliers of big businesses are feeling the greatest pressure. Businesses with 500+ employees are taking 62.7 days to make payments, more than double standard payment terms and an increase of 5.6 days from the December quarter.

Despite maintaining payment periods which are more than three weeks past normal terms, small businesses were the quickest to pay. The 1-5, 6-19 and 20-49 categories took just under 55 days to settle accounts in the March quarter.

According to Christine Christian, D&B’s CEO the increase in the time businesses are taking to pay each other is placing additional pressure on company cash flows in an environment where access to credit has already tightened.

“The impact of the credit crunch and the tougher business environment is evident in D&B’s payment trends data,” said Ms Christian.

“It is clear that during buoyant economic times many companies let their collection practices slip. However these same companies were unprepared for the turn in the credit cycle and consequently are struggling to ensure strong cash flows. They have left themselves vulnerable at exactly the wrong time.”

The Communications sector is the slowest to pay at 62.2 days, an increase of 6.5 days on the December quarter. The Electricity, Gas & Sanitary Services and Mining sectors follow at 61.0 and 59.2 days respectively.

The Agriculture industry was the quickest to pay at 49.8 days, an increase of 2.5 days since the previous quarter.

Public companies continue to be slower payers than their private counterparts however the gap between the two has increased further. The public sector added 6.5 days to the time it takes to settle accounts while the private sector  jumped 3.2 days. Taking almost five weeks longer than the standard term, public companies averaged 64.5 days to pay bills in the March quarter; private companies took 55.6 days.

Examining the data by state reveals that NSW is the slowest to pay at 57.6 days. NSW saw the biggest increase of any state at 3.7 days. At 52.2 days and following an increase of 2.6 days, Tasmania was the quickest paying state.

Dun & Bradstreet’s Global Risk Report shows that Australia’s payment problems are not unique. A number of countries in the Asia- Pacific region pay a significant percentage of payments at 30 days or more past terms, with Australia fourth on the list of bad payers. In the December quarter of 2007 Australia paid 39.3% of payments significantly past terms.

According to Ms Christian, many businesses are being denied access to their cheapest source of funding – their own.

“With the credit markets effectively closed businesses are finding it increasingly difficult to source credit to invest in their business.

“With a significant portion of business failures the result of poor cash flow, any increase in payment periods could have severe detrimental impacts.”


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